AAL, UAL Stock In Focus After Top Executives Flag Fuel Cost Pressure To Trigger Capacity Issues

Soaring jet fuel prices, driven by geopolitical conflicts, are forcing major U.S. carriers to consider reducing flight schedules to protect profits.

• Both American Airlines and United Airlines said they may trim flight capacity in the fourth quarter and early next year to offset surging jet fuel costs. 
• American Airlines expects an extra $1 billion in fuel costs during the final quarter of the year, while United faces around $6 billion in additional fuel costs for the full year. 
• U.S.-Iran conflict and disruptions in the Middle East have driven Brent crude up nearly 70% this year.

Soaring fuel expenses are pushing major American air carriers to evaluate flight reductions into the fourth quarter and early next year as rising geopolitical tensions continue to drive up energy costs.

Executives from American Airlines Group Inc. (AAL) and United Airlines Holdings Inc. (UAL) issued warnings Wednesday at a Morgan Stanley conference in California, emphasizing a shift toward protecting profits over chasing market share.

"If fuel prices remain as high as they are right now, I think that's going to require some adjustments in terms of our capacity planning as we take a look out into the future," American Chief Executive Officer Robert Isom told attendees.

However, AAL executives also highlighted ‘durable’ revenue growth ahead, forecasting about 16%-19% growth in Q3, which somewhat aided the stock.

United Chief Financial Officer Mike Leskinen reinforced the message, confirming that sustained high fuel costs will trigger operational shifts into the first quarter of next year and beyond.

"We are not flying to maximize market share; we’re flying to maximize profitability and free cash generation, so we’ll make those adjustments," Leskinen noted, revealing that United expects to trim selected flights scheduled for December.

AAL stock inched higher by 0.1%, while UAL stock eased 0.2%

Mounting Financial Pressures

Rising energy costs have inflicted significant financial damage across the aviation sector. Brent crude has surged nearly 70% this year, exacerbated by supply threats stemming from conflicts in the Middle East and Ukraine. American Airlines Chief Financial Officer Devon May said every penny increase in fuel costs adds roughly $10 million in expenses.

May revealed that American is bracing for a $1 billion surge in fourth-quarter fuel costs alone. The airline has already revised its full-year earnings expectations downward twice this year, citing major fuel headwinds that fare hikes could not fully offset.

United, meanwhile, projects around $6 billion in extra fuel costs for the year, though executives maintain plans to mitigate the increase by year-end. The Chicago-based carrier previously trimmed second- and third-quarter capacity by 5%, primarily targeting off-peak routes and operations at Chicago O’Hare.

Industry-Wide Adjustments

The cost pressure extends across the domestic airline industry. JetBlue Airways Corp. (JBLU) recently scaled back its projected capacity growth for the year to between 1.5% and 3.5%, down from an earlier forecast of up to 6%.

Despite the headwinds, American executives expressed confidence in their positioning, citing reduced debt levels, strong liquidity, and steady revenue from premium seating options.

Following the announcements, airline shares traded volitily. American stock traded slightly higher after peaking up 4%, while United fell less than 1% after giving up initial gains. Both stocks remain down overall for the year.

UAL, AAL Stock: Retail View 

Retail sentiment on Stocktwits was ‘neutral’ on both AAL and UAL stock, with ‘normal’ message volumes. 

UAL stock has lost 5.6% year-to-date, and AAL stock eased 16.4%. 

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